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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Meera Nair holds 99% of the shares of Nair Foods Pvt Ltd and works as an employee of the company under a service contract. She is injured at the company's factory and claims that she, as virtual owner, cannot also be an employee. Applying Lee v Lee's Air Farming reasoning, what is the likely position?

She may be an employee. Since the company is a legal person separate from its members, it can validly contract with its controlling shareholder, including under a service contract. Her large shareholding does not merge her identity with the company.

  1. AShe may be an employee, because the company is a separate person that can contract with its controlling shareholderCorrect
  2. BShe cannot be an employee, because owner and employee are the same person in law
  3. CHer contract is void because she controls the company
  4. DShe can be an employee only if she holds less than 50% of the shares
  5. She is a partner of the company and not an employee

Explanation

Because the company is distinct from its shareholders, a controlling shareholder can validly enter a contract of employment with it. Shareholding level does not prevent this. She is not a partner, as a company is not a partnership.

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